- Economy : Environment : eBusiness -

One of the defining features of a capitalist economy is the separation of ownership from management.

Shareholders (who are generally considered to be the "owners") invest their money (capital) into firms and hire managers to run the businesses. As investors in a company we rely therefore on our representatives, the Board of Directors, to keep a close eye on a company's management and ensure that they run the business in our interests and not their own.

This is the primary role of a Board of Directors: to oversee the management of a company on behalf of its shareholders.

When the Board of Directors fails in its fiduciary duty, heads should roll. Sure, key managers often get the boot, if not prison terms. Yet too often the members of the Board of Directors escape unscathed, despite what are sometimes gross and egregious failures in oversight. Sometimes, they actually stay on the Board. Other times, they get invited to sit on more Boards.

The roots of this problem lie within our system of director elections, which is deeply flawed. You might be surprised to learn, for example, that the familiar principle of majority rule very rarely applies in elections to the Board of Directors. Under current standards, Directors can be elected with just a single vote (and the candidate him/herself could cast that "deciding" vote.) Moreover, there is typically no mechanism to vote against a candidate. There are rarely more candidates than there are seats, so the seats are completely uncontested. If you think this sounds a bit like Soviet-style elections, you'd be right.

Yet there is a growing movement to revitalize shareholder democracy, to give it teeth. It's something every democracy-loving capitalist ought to support.